Demand Is Not as Bad as the Market Has Been Pricing In

The US is signaling a change in course that should put a floor under the oil market, states Phil Flynn of PRICE Futures Group.

Instead of being a seller from the Strategic Petroleum Reserve (SPR), the US is now a buyer and that is a wake-call to the market that has been intoxicated with SPR barrels.

On Friday, the SPR reported that the Biden administration started to buy back some of the 180 million barrels of oil they sold with a small but symbolic and important three million barrels. On top of that, they also announced a fuel swap of sweet to sour oil to replace barrels that were lost due to the Keystone Pipeline leak that shut down that key oil pipeline.

On top of that, China plans to grow its economy despite rising Covid cases. Still, the China Post reported today that Hong Kong stocks erased gains as China struggles to contain new Covid-19 infections, marring efforts to refocus on shoring up the nation’s economic growth with stronger policy support. The Hang Seng Index dropped 0.5% to 19,352.81 at the closing of Monday trading, overturning an earlier gain of as much as 1.7%. The Tech Index lost 0.6% while the Shanghai Composite Index slumped 1.9%.

While the oil market has been held back by demand fears, the reality is that demand is not as bad as the market has been pricing in. The International Energy Forum reported that, “Global oil demand climbed counter-seasonally in October by 75 kb/d and was 1.7 mb/d higher than a year ago, according to new data from the Joint Organizations Data Initiative (JODI). Demand growth was driven primarily by gains in China, the US, and India.

Meanwhile, global crude production declined by 228 kb/d in October led by losses in Russia, Saudi Arabia, and the US. While markets tightened compared to September, global inventories of crude and refined products climbed counter seasonally by 37.9 mb. Global inventories remain 406 mb below the five-year average. Global demand was at 99% of pre-Covid levels in October, while crude production was at 96% of pre-pandemic levels.

Learn more about Phil Flynn by visiting Price Futures Group.